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What Companies Need to Know About the IRS Pause in Processing and Increased Scrutiny of Employee Retention Credit Claims

Client Alert | 2 min read | 09.29.23

The IRS recently announced that it will stop processing any new claims for the Employee Retention Credit (ERC) through at least the end of the year due to concerns that a large number of recent claims are invalid. The ERC, enacted as part of the CARES Act in 2020, provides a refundable tax credit for eligible employers impacted by the pandemic from March 13, 2020 through September 30, 2021.

This is not the first time the IRS has expressed skepticism about these claims.  In March 2023, the IRS announced that ERC was added to its annual Dirty Dozen list of tax scams and has increased enforcement action involving ERC claims. In July 2023, the IRS announced it was increasingly shifting its focus to review ERC claims for compliance concerns, which include increased audit activity and criminal investigation of promoters and employers. The IRS has reported that it has trained agents to aggressively audit ERC claims and its employees are working hundreds of criminal cases and have referred thousands of ERC claims for audit.

Taxpayers who have already claimed ERC should consider the following:

    • Carefully evaluate your claims in light of the IRS guidance. Taxpayer Taxpayers who improperly claimed ERC may be required to pay back the erroneously claimed ERC amount, resulting in additional tax liabilities, as well as accuracy-related penalties. Taxpayers may also face criminal charges. Taxpayers who claimed the ERC credit though a promoter who is under investigation likely will face scrutiny through audit.
    • If you are concerned about the validity of your claims, or you fear you may have miscalculated your amounts, consider participating in the IRS’s upcoming self-disclosure program to avoid penalties.
    • If you have submitted a claim about which you have concerns, but have not yet received payment, consider participating in the claims’ withdrawal program.
    • Anticipate increased processing times for your claim. The IRS stated that its standard processing goal for existing ERC claims will go from 90 days to 180 days, and the time to process a claim could be much longer if the claim faces further review or audit.

Taxpayers who anticipate submitting claims should consider the following:

    • Consult with your tax advisor to ensure that your claim has a solid basis and is calculated correctly.
    • Have an “audit ready” file containing all documentation supporting your claim. Careful documentation and planning will be necessary to ensure that ERC claims survive IRS audit, as the IRS is likely to apply even greater scrutiny to new claims filed years after the pandemic. Taxpayers should consider whether they have adequate, contemporaneous documentation to show eligibility and support the tax periods for which they plan to claim the ERC, which may include relevant shutdown orders, the number of employees, wage data, financial statements, payroll records, invoices, and receipts.
    • Anticipate increased scrutiny regarding your claim, which may involve questions from the IRS, and audits of the claims’ bases.
    • Anticipate increased processing times.

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Client Alert | 4 min read | 08.07.25

File First, Facts Later? Eleventh Circuit Says That Discovery Can Inform False Claims Act Allegations in Amended Complaints

On July 25, 2025, the Eleventh Circuit Court of Appeals issued its decision in United States ex. rel. Sedona Partners LLC v. Able Moving & Storage Inc. et al., holding that a district court cannot ignore new factual allegations included in an amended complaint filed by a False Claims Act qui tam relator based on the fact that those additional facts were learned in discovery, even while a motion to dismiss for failure to comply with the heightened pleading standard under Federal Rule of Civil Procedure 9(b) is pending.  Under Rule 9(b), allegations of fraud typically must include factual support showing the who, what, where, why, and how of the fraud to survive a defendant’s motion to dismiss.  And while that standard has not changed, Sedona gives room for a relator to file first and seek out discovery in order to amend an otherwise deficient complaint and survive a motion to dismiss, at least in the Eleventh Circuit.  Importantly, however, the Eleventh Circuit clarified that a district court retains the discretion to dismiss a relator’s complaint before or after discovery has begun, meaning that district courts are not required to permit discovery at the pleading stage.  Nevertheless, the Sedona decision is an about-face from precedent in the Eleventh Circuit, and many other circuits, where, historically, facts learned during discovery could not be used to circumvent Rule 9(b) by bolstering a relator’s factual allegations while a motion to dismiss was pending.  While the long-term effects of the decision remain to be seen, in the short term the decision may encourage relators to engage in early discovery in hopes of learning facts that they can use to survive otherwise meritorious motions to dismiss....

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